*1 & ELEVATOR WAREHOUSE FARMERS ALMOTA v. UNITED STATES CO. January 16, 1972 Decided Argued October
No. 71-951. Doug- StewaRT, J., opinion Court, delivered the of the which JJ., joined. Powell, J., and las, Marshall, Brennan, Powell, concurring opinion, J., filed joined, post, p. which 479. Douglas, J., dissenting opinion, J., filed a in which C. Rehnquist, Burger, JJ., post, p. and joined, Blackmun, White Lawrence Earl Hickman argued peti- the cause for Philip tioner. With him on the briefs was H. Faris. Attorney Assistant General Frizzell argued cause for the United States. With him on the brief were Solici- tor Griswold, General Terry Wm. Edmund Bray, B. Clark, Jacques B. Gelin. delivered the opinion
Mr. Justice Stewart Court.
Since petitioner, 1919 the Almota Farmers Elevator & Warehouse grain has conducted opera- elevator adjacent tions on land to the tracks of the Oregon- Navigation Railroad & Co. the State Washington. *2 Washington. occupied It has the land under a series In the from railroad. successive leases the proceed- instituted this eminent domain by ing acquire petitioner’s property to the con- demnation. At that buildings time there were extensive and improvements other on had been erected by land had and the then-current petitioner, 7y% years to run. In the District Court the Government contended that just compensation for the leasehold interest, including the structures, should be “the fair market value legal rights possessed by of the defendant virtue lease as of the date of and taking,” consideration should be given to any additional value based the ex- pectation that the lease might peti- be renewed. tioner urged rather than that, this technical “legal rights just theory,” compensation should be measured what buyer a willing pay would in an open market for the petitioner’s leasehold. practical
As a controversy matter, upon centered placed valuation to upon the structures and their appurtenances. The parties stipulated that the Govern- ment had no need for improvements these and petitioner right had a to remove them. stipu- But that petitioner only lation afforded the what scant salvage buildings value the might bring. The Government of- fered compensation for the loss occupancy of the use and the buildings only over the term of the remaining petitioner lease. The contended that this limitation upon compensation for the use of the structures would fail to buyer award what a willing would have paid for the lease with the improvements, a buyer since such expect would to the lease renewed and to continue use the improvements to in place. The value of the buildings, machinery, equipment in place would be substantially greater than salvage their value at the end market open in an purchaser and a of the lease term, buildings use pay anticipated for the would having from not realize he would savings dis- sum, In himself. construct new satis- have to be whether Almota pute concerned with their structures with its to remove the right fied entitled it was value or whether consequent salvage award the value of reflecting beyond lease term. place accepted In a District pretrial ruling, to be held Almota was theory and petitioner's its leasehold compensated for value of the full market of the date of improvements thereon as building “and *3 im- and , . . . the total value of said leasehold taking of said com- ... to be what the interests provements upon for been then sold pany therein could have possibilities open all elements and considering market the market value of whatsoever found to then affect of, possi- those interests but not exclusive including, re- bilities of of the lease of the landlord renewal and of quiring the removal in the event of lease The being accordingly there renewal.” court ruled full petitioner that was to the fair entitled market of the use the buildings of land and of they in place as stood the time of the without taking, limitation of such use to the remainder of of term the existing lease. Appeals
On the Court of for Ninth Circuit appeal, 2d reversed, 125; accepted F. the Government’s theory expectancy tenant’s in a lease renewal was. compensable not a legal interest could be in- cluded in the valuation of structures that the tenant had rejected on the property. It for any built award beyond of improvements use term “com- as pensation expectations disappointed by the exercise the sovereign power domain, expectations of eminent based upon any protected but legally right, not based ” 450 F. upon speculation . ‘a a chance.’ only . . follow an explicitly The refused to at 129. court 2d, Appeals en for the Second banc decision of Court of held Circuit, which had upon Court, relied the District that for made purposes condemnation place over lessee are to be assessed at their value their useful term the regard life without lease. to the Property, Borough States v. Certain Manhat- tan, 388 F. 2d
In view of cer circuits, this conflict we granted tiorari, 405 U. important question S. to decide an of eminent upon domain law: condemnation “Whether, leasehold, of a right a lessee with no is renewal entitled to receive im the market value provements without term regard of its remaining lease, expectancy because of the the lease would have been renewed.” We find view of the Court of Appeals for the Second Circuit in accord with established principles just-compensation law under the Fifth Amendment, therefore reverse the judg ment before us and reinstate the judgment of the Court. District provides Fifth private Amendment
shall not be taken for public without “just compen- use sation.” ‘just “And compensation’ full means the mone- tary equivalent of the property taken. The owner is
1This was question the statement presented of the by the Govern opposing grant ment in petition As the for certiorari. petitioner phrased question, the Court “In was asked to decide: awarding just compensation a in to tenant of condemnation a property, including leasehold in building real tenant owned improvements thereon, great and fixtures situated an element of improvements inherent in merely value be excluded because it not, by itself, does legal right.” property rise to the status a (Emphasis added.)
474 monetarily he would as position in same put be
to not been taken.” his had occupied if have (footnotes Reynolds, 14, U. S. United States 317 U. Miller, S. also United States v. omitted). See monetary equivalence, 373. To determine such 369, value”: of “market early concept established the Court fair market value of his owner entitled to the Sage, York v. New taking. at the time of the Reynolds, States v. 61. See also United 239 U. S. And Miller, supra, at 374. at States v. 16; United supra, normally from “what to be ascertained this value is buyer seller.” pay willing would cash to willing Virginia Electric & Power Ibid. United States v. See U. S. By improvements place over failing to taking possibility their useful into account the life— possibility the lease renewed as well as the might Appeals in might it not —the this case failed buyer what a would for recognize willing to have If had improvements. condemnation, there been have continued use the Almota would to improve- or term, a renewed lease if sold the during it lessee the end of ments to the fee owner new compensated for the term, the lease been buyer’s ability place to use the over Friendly useful life. As wrote for the Court Judge their Appeals Second Circuit: keep properties do their desire, all, “Lessors after usually leased, and an tenant the inside existing has track to a renewal for all kinds of reasons —avoid- costly com- alterations, saving brokerage ance decency perhaps ordinary part on the missions, even Thus, even when the lease ex- landlords. has will pired, the condemnation often force the tenant to remove or abandon the fixtures before he long had him to, deprive would otherwise have as well *5 a to deal with the landlord or of the opportunity the fix- only whom people new tenant —the two heavy tures would have a value unaffected reassembly. con- disassembly of and The costs assumptions, to of demnor not entitled the benefit is contrary the fixtures experience, to common of expiration at the stated would be removed Borough Property, v. Certain States term.” United Manhattan, (footnote F. 601-602 2d, of omitted). likely particularly in case Almota
It seems this price that would could have sold the leasehold at ability buyer to use have reflected the continued their life. Almota had over useful in unbroken of leases since it was succession to leas- railroad, owner, as fee continue in grain facilities, its elevator ing property, with its In promote shipments lines. grain order over market, hardly free have sold leasehold Almota only purchaser for the use of the facilities to a who with Almota retain- term, over the remainder of facilities —in effect, thereafter to remove the ing right fixtures “Because these diminish right salvage. less than their upon removal, damages a measure of for use would constitute a place fair market value just compensation. without taking substantial ‘[I]t factory state, condemning that the after intolerable the owner warehouse, should surrender a stock full machinery doing discharge so secondhand ” 1,132.50 Acres duty.' United States measure Land, 441 F. 358.2 2d “totally hardly to which is entitled is Almota The interest,” suggests. Post, the dissent set free from [its] assuredly “private property” that The are at 484. acknowledges and for must Government has “taken” which it only dispute pay compensation. in this case is over those how *6 476 Motor Petty States v.
United 372, upon U. 327 S. not to primarily relies, which the Government lead does contrary a The did indicate that meas- result. a is to damages ure of for condemnation of leasehold of its and occu- be measured terms of use pancy term, for remainder of the lease and the Court of renewal into a com- expectation refused to elevate But pensable dealing interest. the Court was not legal improvements. with the market value of Un- there fair Motor, Petty no here creating there is question like cognizable a value where none com- legally existed, expectation.3 The pensating incorporeal peti- mere a improvements tioner here has constructed the and seeks Petty Motor should not be only their fair market value. valued, improvements are be over whether Almota is to to not may compensation for Almota receive additional business losses. elsewhere; grain operate well be unable to elevator business it profits going business, but well lose the and other values States, compensation it of that. Mitchell United seeks for none obliged pay 341, not 267 U. S. did hold that the Government %vas to assuredly by But it did losses caused condemnation. business provide compensa- fail to fair not hold that the could Government taken —dismiss them tion for business that are scrap simply not intend than because did worth more value — paid compensa- Indeed, to them. in Mitchell the Government use including par- land, “adaptability for use in a tion both for the business,” 344, id., for the thereon. ticular at seeking compen Hence, petitioner is a case where the this A v. ex rel. TV opportunities, see United States for lost sation 281-282; Co. v. Powelson, 266, Omnia Commercial United U. S. only petitioner the fair value of States, 261 The seeks U. S. 502. by the Government. for “the is to is this a case Nor where potential with use connection fee lands their value added to Fuller, post, p. States v. permit lands,” [Government] adjacent to nor location the Government for neither action any Almota’s value to element of public property contributed leasehold interest. escape what paying
read to allow Government pay buyer property. for the same willing argues that it would be unreasonable compensate Almota for value of the improvements their life, measured over useful since the Government purchase could the fee and wait until expiration *7 the lease to take possession term the land.4 Once it the purchased fee, argument has the no goes, there is improvements further expectancy that the will be used during their useful life the will Government as- since suredly require their at the removal the end of term. But the taking proceed- the dam was one act requiring ings owners of two against interests.5 At the time that “taking” Almota had an expectancy of occu- continued pancy grain of its elevator facilities. The Government pay just must compensation for “prob- those interests ably within the scope project of the from the time argument It was established at oral that while Government the. acquire had interest, acquired contracted to the railroad’s it had not taking leasehold, pos fee at of the the time of the nor did it have session at appeal. the time of the trial or frequently happens “It long in the ease of a lease for a term years buildings puts that the tenant erects or into the fixtures buildings buildings for his own if use. Even fixtures are conveyance pass attached the real to estate and would with a land, personal of the they as between landlord and tenant remain property. agreement contrary, special In the absence of a to the buildings may any such or fixtures at be removed the tenant during lease, provided time the continuation removal of the such may injury rule, however, be made without to the freehold. This entirely protection tenant, exists for the of the and cannot be buildings invoked condemnor. If are attached or fixtures estate, they determining as to the real must be treated real estate award, apportioning they are But in treated total award. Nichols, personal to the as credited tenant.” 4 P. Eminent Domain § 13.121 [2] (3d rev. ed. 1971) (footnotes omitted). States v. it.” United to committed was Reyn United States v. Miller, Cf. S., 317 U. at advantage olds, It not take S., at 16-18. 397 U. is at any depreciation in Id., 16; at itself. project tributable Power Virginia & S., States Electric 365 U. at case, in this there taking At the 635-636. time improvements would be expectancy was term. But the Government beyond the lease used theory on the sought pay compensation has lease would possibility time no that the there was beyond renewed used be valued term. It has asked that use.6 there were of continued That though possibility improve is not how the market would have valued such buyer ments; private it is what Almota. requirement just
“The constitutional *8 princi- much equitable derives as content from basic the Trading States v. United Commodities fairness, ples of Cory., (1950), from tech- 339 U. S. as it does Fuller, law.” States concepts of nical post, It true Almota should course, at is, if it position be in no better than had sold its lease- surely private buyer. position to a But its should hold be no worse. judgment before us is the judgment reversed and
of the District Court reinstated.
6Similarly, today petitioner’s the would inter dissent value the underlying fee, est after the has condemned and petitioner’s the value thus after of the interest has been diminished because the risk of the lease nonrenewal has materialized. But only “taking,” “taking” was one there time of that there only renewed, a risk was not the lease would but a possibility be and that would would be used over their useful life. Doug- Powell, with whom Mr.
Mr. Justice Justice las concurring. joins,
I join opinion Court, but add a few words I rejection find in its implicit to indicate what if it Government’s claim to were Almota’s landlord. act clear, all, improve- It first that the market value of vary placed depending ments on a leasehold interest will in major part upon probable future conduct of the In case, experience nearly landlord. based this century half and the evident of the land- self-interest railroad, predicted lord this conduct could be with con- every expectation siderable confidence. There was would continue to have significant beyond present term of In a lease. trans- action willing buyer between a and willing there seller, can be no doubt that this value would have been accorded appropriate weight. facts,
On different the market value Almota’s inter- might est have been significantly If, lower. for example, the railroad had relocated its tracks before the Govern- ment entered picture, the leasehold improvements would been nearly have valueless in the A market. risk which Almota in erecting took those improvements, the risk that the railroad would tracks, relocate its proved poor one. The risk would have substantially been the same if, independently of the present navigation project, pur- Government had chased railroad with the intention of operating it, thereafter had decided to relocate it or to discontinue *9 operation. Under those circumstances, the Government properly could acted as ordinary landlord, and its lessees could have expected been to bear risk it put would its land to a new use.
Here, however, Government held no interest in the land until navigation its project required acquisition of both the fee and the leasehold interests. If,
480 both interests condemned had the Government
point, Almota separate proceedings, inor proceeding, single for value compensation to been entitled would have Al- beyond present term. its change railroad risk that would mota bore the bear the risk that be forced to not plans, but should change the fee and would condemn the Government property interests multiple properties its use. Where public project, the Govern- particular for are condemned each. pre-existing market pay ment must condemnee take nor Neither the Government value attributable of “an alteration market advantage Reynolds, States v. itself.” United 397 to the project Virginia Electric United States v. 14, (1970); 16 U. S. cf. Power & (1961); 365 635-636 U. S. Miller, States (1943). v. 317 377 U. S. merely because the result should be different by ne arranged acquire to the fee interest from
gotiation Apart rather than condemnation. Rands, as in United States v. cases where, U. S. (1967), property the Government has interest ante dating present but within the bounds its project, unjust to the Government to allow use “salami tactics” reduce the amount of property one owner’s acquiring piece first an adjoining or another interest the same from Petty owner. While United States another property Motor Co., (1946), S. 372 arguably U. establishes an exception this I subscribe principle, to the Court’s narrow construction of that case. Justice Rehnquist, with whom The Chief
Mr. Justice, Justice White, and Mr. Justice Black- Mr. mun join, dissenting.
Petitioner is entitled to compensation for much so private “property” taken for was public use. *10 interest petitioner's property parties concede The portion 20-year of a unexpired here taken was Railroad Oregon-Washington by land owned Court Washington. Colfax, & Co. near Navigation recognizes petitioner’s the limited nature taken, but real concludes to have its leasehold and was entitled way probability valued in such as to include by petitioner’s 20-year renewed lease would have been expiration. railroad at its There a plausibility resounding about’the Court’s concept endorsement “fair market value” as for touchstone but the reached valuation, result to me quite the Court seems to be at odds with our prior of United sharply reading cases. Even in limited its Co., States v. Petty Motor (1946), S. 372 U. petitioner’s expectation concedes that the having upon expiration lease renewed is not itself inter in property est may which it compensated. be But permits the Court practical the same result be reached by saying that, at least in the case of improvements, the fair market value computed terms of a buyer’s willing expectation that the lease would be renewed.
In Petty States Motor supra, the Gov- acquired ernment by condemnation the use of a struc- ture occupied by tenants possession under leases for unexpired various terms. The Court held that the meas- ure damages for condemnation of a leasehold is the value of the tenant’s use of the leasehold for the remainder agreed less the term, agreed rent. The Court considered the argument, essentially same raised petitioner here, history that a past renewal of the leases to existing tenants creates a compensable expectancy, but held that the right should be solely measured on the basis of the remainder *11 Id,., 380. itself. the lease under term the tenant’s
of
stated:
deciding, the Court
In so
their
occupied
had
tenants
fact that some
“The
long periods
by mutual consent for
leaseholds
Boston
Emery v.
rights.
not add to their
years does
763
N. E.
50
185,
Mass.
Co.,
172,
178
Terminal
Holmes, C.
[per
J.]:
“
in
been
had
the owners
appeared
Tt
that
time
from
petitioners’
lease
renewing
habit of
not
are
intentions
Changeable
....
to time
inten-
no doubt such
although
and
interest
land,
to the value
practically
added
may have
tions
not be taken
they could
holding,
petitioners’
respondent
what
determining
into account
tenants’
They
nothing
added
to the
pay.
should
are
that
legal rights
all
must
legal rights,
added to the
paid
Even if such intentions
for.
lease,
the addition
saleable
speculation
chance,
legal
a
on a
not a
represent
” Id.,
n.
at 380
right.’
a
line
Petty
long
The
was consistent with
holding
does
cases to the effect that
the Fifth Amendment
require,
taking
property
compensa
not
interest,
expectancies
profit,
tion for mere
for the frustra
pertain
of licenses or contractual
that
to the
rights
tion
specifically
but that are not
taken and that are not
land,
property
vested
interests. Omnia Commercial Co. v.
States,
Pipe
261 U.
510
Sinclair
(1923);
S.
States,
Line Co. v. United
“No therefor can be had now as of the taking business. There is no finding as a fact the Government took the business, or that what it did was intended If taking. as a was an un- destroyed, the destruction
business was Id., at of land.” taking intended incident TV A Powel in ex rel. recently, More United States son, generalized the Court (1943), 319 U. S. further: 'private property’ is not within
“That which may Fifth be meaning of the Amendment likewise destroyed impaired a thing of value which is by of lands But taking United States. destroyed like the in but not 'taken’ business Mitchell case it need not in be reflected the award due the Congress provides.” landowner unless so Powelson, In either Mitchell or the result would all probability have been applied different had the Court reasoning applies Here, too, this case. on the property are not desired project for the in question, but taking petitioner’s prevents leasehold interest its con- tinuing to have their use for the indefinite future as it had anticipated. says although “property” interest would expired years, 7% the market value of computed *13 expectancies basis of that do rise to the level property a interest under the Fifth Amendment.
If permissible methods of valuation are to be thus totally set free from property they purport it value, why is difficult to see the same standards should not be applied to a going business. Although the Government does not take the going busi- ness, and although the business is not itself a “property” interest within the Fifth Amendment, purchasers since on open market would paid have an added increment of value for a because business was located on it, may well be that such increment of value is award under included in condemnation properly no assuredly make today. it will holding And Court’s destruc- learn that to the owner to difference if he be compensable, tion of a business is not going upon which property concededly assured way located be valued in such was business have purchaser to include the amount for the business. in this case
The extent to which decision the Court’s fact will unsettle condemnation law is obscured parties, motivated doubt condemnation lawyers’ into factual propensity well-known to enter stipulations present abstract of valua- questions theory tion decision, stipulated toas amounts to be awarded depending party prevails. which But difficulty the underlying petitioner’s theory with was lucidly demonstrated by the late Madden his Judge opinion for the Court of Appeals in referring this case, to the similar holding Appeals for the Tenth in Scully States, Circuit v. United 2d 1061 F. (1969):
“If the law were to
into
go
of award-
business
ing compensation
expectancy
for an
which never
materialized,
because
'took’ the
sovereign
sub-
ject of the
Scully, supra,
expectancy, should,
e. g.,
year
the one
compensated
lessees be
for the
loss of a
year
five
occupancy,
year
a 60
occupancy,
a perpetual occupancy?
In our instant case, was
stipulation
based upon
computa-
some actuarial
tion such as
prospective
life of the buildings
and machinery, or the life of the
upon
railroad,
free-ranging guesswork?” United
v. 22.95
States
Land,
Acres
486 depreciation prop- any of advantage not take itself, United project
erty
that is attributable to
taken
States
v.
United
Reynolds,
States v.
(1970);
14
397 U. S.
Miller,
petitioner’s
The
of
(1943).
value
In partially at least loose cutting the notion “just compensation” from the “private notion of property” developed has under the Fifth Amendment, Court departs from the settled doctrine numerous prior cases that quite rigorously adhered to the principle that destruction of value itself affords no compensation. occasion for Fuller, States v. post, Rands, United States p. 488; 389 U. S. (1967). “[Djamage alone gives no power courts require com pensation where there is not an actual taking of prop erty.” United States v. Willow River Power Co., U. S. (1945). existence of “[T]he value alone *15 Constitution protected interests generate does not Reichel government diminution against (1932). While Quinn, 315, 287 U. S. derfer principle well-established follow this purports on to be determined by requiring actually its endorse taken, private the basis expectancy part computed ment of valuation de represents a part is no I dissent. therefore doctrine. from this settled parture